Q4 2020 Ball Corp Earnings Call
Please standby the conference will begin momentarily we thank you for your patience and ask that you. Please remain on the line once again today's earnings call will begin momentarily.
[music].
Okay.
Greetings and welcome to the Ball Corporation fourth quarter, 'twenty and 'twenty earnings call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
And if at any time during the conference you need to reach and operator, Please press star zero.
As a reminder, this conference is being recorded Thursday February 4th 2021.
Oh and I'd like to turn the conference over to John Hayes CEO. Please go ahead.
Great. Thank you Demetrius and good morning, everyone. This is ball Corporation's conference call regarding the company's fourth quarter and full year 2020 results. The information provided during this call will contain forward looking statements actual results or outcomes may differ materially from those that may be expressed or implied some factors that could cause the results are out.
Comes to differ are in the company's latest 10-K, and and other company SEC filings as well as company news releases if you.
You don't already have our earnings release, it's available on our website at ball Dot Com information regarding the use of non-GAAP financial measures May also be found and the notes section of today's earnings release. The release also includes a table summarizing business consolidation and other activities as well as a reconciliation of comparable operating earnings and diluted earnings.
Per share calculations. In addition, the press release financials include description of new segment reporting for our EMEA and other non reportable segments and joining me on the call today are Dan Fisher, our new President and Scott Morrison Executive Vice President and Chief Financial Officer, I will provide some introductory remarks, Dan will discuss packaging and Aero.
Space and performance and trends and Scott will discuss key financial metrics and.
And then I'll finish up with comments on the outlook for the company.
First let me begin by thanking our employees together, we were able to adapt to work safely serve our customers and higher thousands of new colleagues and midst unprecedented growth and external challenges your empathy flexibility adaptability and can do spirit a remarkable. So thank you I also want to thank our customers suppliers and the communities and <unk>.
Which we operate as well this past year has put a profound challenges on all of us and our ability to work with each of you for the betterment of all is not taken for granted by US were truly blessed as an organization and as a family ball employees to work with you all and together we have persevered.
2020 finished strong with full year comparable diluted earnings per share up 17% full year comparable net earnings up 14% and EBITDA dollars up 25% momentum continues across our businesses with full year and fourth quarter global beverage volumes up, 5% and 12%, respectively, and whatnot book backlog and aerospace.
Space is up 30% year over year, the growth trajectory and our packaging and aerospace businesses, our strong balance sheet and financial flexibility and our execution on growth capital investments give us even greater conviction and our ability to significantly grow diluted earnings per share EBITDA dollars and cash from operations.
Together these elements will enhance a significant return of value to shareholders and 2021 and beyond.
Our focus remains on working safely executing on capital investments, leveraging our product portfolio and technologies enhancing the customer experience and investing in talent training processes and systems to deliver long term value.
Before I turn it over to Dan to discuss our business performance, we've had a variety of well deserved promotions since our last earnings call and I want to congratulate everyone, including but not limited to Dan Scott Morrison Liza Poly, Ron Lewis carry Causey, Dave Coffman, Charles Johnson, and Jay billings on their well deserved promotions as well as us.
And as to stand classic on his upcoming retirement and many contributions to ball.
Our long standing succession planning process is thorough and thoughtful and 2020, our employee base is up over 3500 people to serve the sizeable amount of growth in front of us with our once in a lifetime opportunity happening.
Speak this is a perfect time to further engage our rising leaders, while leveraging longstanding ball mentors to support their success to create equal opportunities for each and every one of us at ball. Other highlights from 2020 include our global beverage business is completed or is completing with startup and speed up of numerous lines and the U S EMEA and.
Brazil, as well as announcing additional projects to install at least 25 billion units of contracted capacity by the end of 2023.
Our aluminum aerosol business successfully closed on the aluminum aerosol manufacturing plant acquisition and Brazil.
Our cups team constructed and started up our first dedicated aluminum cups manufacturing facility and preparation for our expanded 2021 retail launch, which we expect shortly.
Our businesses have significantly increased employee training and development to ensure a smooth startups of our various projects as well as hosted a variety of virtual programs to help our new folks get up to speed and who we are where we're going and whats important whether it be behaving like true owners to our Eva mindset or providing inclusivity programs to help <unk>.
Or immersion into the ball culture, and we further drove our sustainability leadership to ensure that the aluminum packaging continues to be the most sustainable package and the world whether it be publishing third party reviewed lifecycle analyses that independently verified aluminum packaging is the best substrate relative to its carbon footprint finalized appeal.
And we will have our science based targets and alignment with the one five degree Celsius targets of the Intergovernmental panel on climate change implemented sales several renewable energy programs achieve system wide performance and Ciena custody, ASI certification and our EMEA business or launch plans to achieve ASI certification and all of them.
<unk> regions and summary ball continues to operate from a position of strength and our future is getting even brighter. Despite the rising global COVID-19 cases, and the geographies, where we operate nothing is slowing us down and of our businesses and we're excited to bring additional capacity and infrastructure online as quickly and as safely as per.
Hospital, and 2021 and beyond to everyone listening best wishes to you and your family for good health and continued safety and with that I'll turn it over to Dan Dan. Thanks, John.
And it's certainly humbling to step into my new role as President and this is a company that means a great deal to me and has for the last 11 years and.
And my estimation and the future of ball has never been brighter and I look forward to continuing that trajectory with our over 22000 team members for years to come.
Transitioning into how we ended the year I Echo your thanks to our employees customers and suppliers.
We all became closer during 2020, a silver lining for share.
Our HR and environmental health and safety professionals and packaging and aerospace continued to keep our teams safe and vigilant.
And in certain regions outside of the U S. Our teams have facilitated access to additional health care services for our employees and their family members impacted by COVID-19. Thank you again you are saving lives.
First I'll spend some time discussing global beverage and then move on to our aerospace performance and outlook.
And 2020 global beverage volumes were up 5%, despite the difficult second quarter, and South America, and EMEA specialty mix increased to 46% operating earnings were up 8% and we increased EBITDA dollars 40%.
We also secured new customer and supply chain contracts refocused on customer experience with a new customer portal. The source began manufacturing the aluminum Cup and scale expanded our team to ensure our growth is properly resource elevated a diverse group of leaders across management engineering.
Commercial and procurement and.
And as John mentioned, we made significant progress in commercializing sustainability the team truly delivered amidst challenging circumstances.
As we discussed throughout 2020 growth and our global beverage business is accelerating and every day is leading to even more opportunities as consumers and customers continue to leverage sustainable aluminum packaging with their brands and product extensions.
It is vital and 2021 that we effectively manage complexity and support a resilient and agile supply chain and deliver a great customer experience and through sustainability and our product portfolio continue to broaden the addressable market for aluminum cans and bottles and cups.
And though it was only February and.
Very positive about our ability to achieve these goals and deliver low double digit global volume growth and global specialty mix and excess of 50% and aspiration. We first discussed at our 2018 Investor day.
By 2025, we continue to believe that the industry will grow by at least 100 billion units and ball is well positioned to capture at least $45 billion billion units, given our scale and capabilities and the world's largest can markets.
By the end of 2023, we will have installed 25 billion units of capacity to support our customers filling capacity expansions and product portfolio growth contractual terms and conditions are favorable we are prime and supply chain by entering into multiyear contracts for equipment Nextgen coatings and.
And metal supply and of course.
Adhere to our Eva discipline and every facet of these preparations.
Now we execute.
At present, and despite 7 billion units plus of annual run rate capacity coming online demand continues to outstrip supply across North America, South America, and our EMEA business.
Therefore, the timing and size of capacity additions coming online will influence quarterly year over year growth rates.
So, let's not get distracted by any short term data points simply put this is a significant multiyear growth story from a highly cash generative company that has an established proven growth rate with the wherewithal and flexibility to invest more and return a lot of value to fellow shareholders along the journey.
We are thankful to be able to add skilled manufacturing jobs and the U S and elsewhere to help the global economy recover.
As we look forward to minimize startup costs and provide our customers the best experience with ball execution will be key.
I am happy to report that our new lines, and Fort worth and Rome or running at speed.
And that our new Glendale, Arizona plant started up.
The initial line.
Recently and that incremental line.
Lines have already been installed and Glendale to support our customers successful filling operation startup located adjacent to our facility.
Also and our new pits and Pennsylvania plant and preparations are being made to ramp up much needed capacity and the second half of 'twenty and 'twenty one.
In addition, we will be executing additional investments across our north American footprint, including construction of a new and manufacturing facility and bowling Green, Kentucky to align can and and availability, we anticipate the and facility coming online in 2022.
As we look out across our global plant network outside of the U S. We announced this month our intention to open a new two line beverage can plant and the Czech Republic, and our new two line beverage can plant and fruit all Brazil will supply additional cans to the fast growing Brazilian can market and late 2021.
And North America beverage full year, and fourth quarter volumes were up 11% and 6% respectively.
Specialty mix improved to 34%.
Going forward, we see volume growth greater than 6% over the next three to five years and continued growth and specialty all supported by longer duration contracts.
And the fourth quarter, given the scale of new capacity coming online and labor to support them startup costs offset the benefit of improved volume and mix and 2021 startup costs will continue throughout the year given the continued pace of growth and are expected to be north American centric and and the range of <unk>.
$50 million with volume growth supported by new capacity improved contractual terms and mix will more than be offsetting their impact.
We continue to prioritize growth opportunities and North America, and look forward to discussing additional plans throughout 2021 and 2022.
Despite the industry capacity coming online, we see the demand continuing to outstrip supply well into 'twenty and 'twenty, three and depending on our customers' rate of capacity expansion, possibly beyond.
And EMEA segment volume for the full year and fourth quarter was up 5% and 20% respectively.
And specialty mix increased to 54% and.
Cross fault EMEA business day.
Demand trends improved throughout the year and positive momentum has continued into 2021.
Additional capital projects completed across the region provided needed capacity and we foresee European beverage can volumes up mid single digits and 2021 and beyond.
Future growth will be supported by new categories, utilizing cans and projects like the new checkpoint as well as other regional opportunities.
Tight supply demand continues and we will assess all future opportunities through the lens of EBITDA.
And South America full year, and fourth quarter volumes were up 12% and 11% respectively, driven by increased package mix for aluminum cans and the beer category, resulting in our specialty mix growing to 62%.
Following a difficult second quarter beverage cans have been very resilient with store owners, leveraging recyclable aluminum cans over other substrates and package mix on the shelf remains and the 60% range versus a rate of 50% at the end of first quarter 2020.
Similar to our prior commentary we.
We anticipate can growth and the mid to high teens.
And Ken and can mix on the shelf remaining high beyond 2020, and supported by investments like our new <unk> facility.
In summary, our global beverage team now led by Ron Lewis navigated, a dynamic and challenging year through sheer will and controlling the things. We can control. We also thank our teams and India, Saudi Arabia, and global joint ventures for supporting our global regions and much needed support during two.
In 2020 and beyond.
Sticking with global packaging.
Our aluminum aerosol team did an amazing job during a challenging year.
Earnings increased slightly despite a 3% decline and global volumes due to diminished use of deodorants and hair care products during global quarantines.
The team pivoted to new categories and manage cost.
Integrated and acquisition and positioned our infinity refillable Reclosable sustainability solution for personal care, and lotions and shampoos now and plastics.
And as John mentioned, our Cups team continued to execute and prepare for an exciting 2021.
Following the Companys $20 million plus investment to stand up the business, we expect our cups business to turn a profit starting in 2022.
Turning to aerospace and full year and fourth quarter operating earnings improved 9% and 5% respectively.
Impressive results given a variety of inefficiencies brought about by operating the business during the <unk>.
And then Covid environment, which I am happy to address during Q&A.
Rest assured there is no change and our ability to grow our team persevered and has not lost any momentum winning new work and bringing on new talent to support our growth.
We also executed on new infrastructure, one new study contracts upgraded tools and systems and increased our unfunded backlog and 30% year over year. We continue to be very excited about the long term prospects of this business as well and.
On a personal note I look forward to leveraging David Kaufman Kaufman's extensive industry knowledge as we both assume our new roles.
Thank you again to all of our teams around the globe. Your leadership has been nothing short of remarkable.
Keep it up and stay safe and it's going to be another amazing year.
With that I'll turn it over to Scott. Thanks, Dan I'll focus my comments, specifically on the fourth quarter and key metrics to keep in mind for 2021.
Comparable fourth quarter 2020 diluted earnings per share were <unk> 81 versus <unk>, 71, and 2019 and increase of 14%.
Fourth quarter comparable diluted earnings per share reflects strong global beverage and aerospace segment results a lower share count.
And lower interest expense offset by higher corporate costs, and startup and labor costs related to our new cups business and new U S. Beverage can facilities ball's balance sheet is very healthy with ample liquidity and flexibility and the current environment taking into account the dynamic growth and our businesses and the necessary speed to market for ongoing initiatives, we invested <unk>.
$1 1 billion and Capex in 2020.
And while also returning $275 million.
To our shareholders all in an excellent year the business and balance sheet are strong EBITDA dollars are growing and we're ready for the next stair step and growth as we sit here today. Some additional key metrics to keep in mind for 2021, our full year effective tax rate on comparable earnings will be and the range of 19% for your interest expense will be and the <unk>.
<unk> $275 million roughly flat with this past year and full year corporate undistributed costs recorded in other non reportable is expected to be and the range of $80 million as we support our larger and growing businesses are.
Our 2021 cash from operations will continue to grow in line with the earnings trajectory and longer term, we see a path to doubling our cash from operations by 2025 as.
And as we discussed at last year's Investor Day, we'll be investing even more growth capex to expand aerospace facilities beverage can production capacity in North America, EMEA and South America, while also investing and our aluminum cups business and currently expect 2021 capex to be in excess of $1 5 billion.
Beyond 2021, multi year internet internal investments to serve organic growth and net returns well above our 9% after tax rate will continue.
Ball continues to be good stewards of our cash and we will prudently balanced realtime growth opportunities with consistent return of value to our shareholders given our growing operating cash flow, we're managing the business business appropriately for the long term investing capital with an eye on EBITDA returns managing our balance sheet effectively and with the flexibility of returning even more value.
And to our long term shareholders, and 2021 and beyond and with that I'll turn it back to you John Great. Thanks, Scott and summary, our drive for 10 vision served us very well over the past decade, and and indeed in 2020, whether it be broadening our geographic expansion and developing new customers markets and products and doing so with a commitment to being close.
To our customers and with uncompromising integrity ball continues to be uniquely positioned to lead and invest and sustainable growth, while delivering significant value to our shareholders as we embark upon our 141st year and operation as we sit here today, our ability to grow comparable diluted earnings per share greater than our <unk>.
Long term goal of 10% to 15% and achieve or exceed our Eva dollar growth goals of 4% to 8% per year and 2021 and beyond is certainly our expectation and our teams working together, we will do everything possible to outperform work safely and execute on capital investments. Our time is now and we are thankful.
And we'll look at 2021 is a year of promise and great opportunity.
And with that Dmitry, we're ready for questions.
Thank you and if you'd like to register a question. Please press the one followed by the four on your telephone.
Here with me Tom from to acknowledge Everquest and ask your question has been answered and you'd like to withdraw your registration. Please press the one followed by the <unk>.
Our first question comes from the line of that and Neel Kumar with Morgan Stanley. Please go ahead.
Hi, Thanks for taking my question.
In North and Central America, and we get adjusted out the $25 million and startup costs.
Margin and incremental sales are still a bit lower than we've seen in prior quarters.
And just provide some color on why incremental margins were lighter this quarter and.
And then in general can you just give us a sense of how we should think about the potential growth and North America earnings and 2021 based on the various moving pieces like higher volumes that are contractual terms and higher start up costs.
Sure. This is Scott I'll take that.
I mean, if you look at the $25 million of incremental costs about half of that is startup and about half of that is just increased labor to support the total growth from the business.
If you look at it from that perspective, and then also remember we were important and quite a few cans and the fourth quarter and the margins on those incremental cash from a mixed standpoint aren't going to be as good as what you would normally get so as we wrap up this capacity will need and will need to do that and so margins will improve and the mix will approve over type two is most of the capacity we're putting in is specialty.
So I would expect and in 2021.
Stability will grow but remember I think we mentioned that theres, probably $50 million and startup cost that we'll see and 2021 that will dampen those margins youll see most of that and the first half of the year as we ramp up these big facilities, Glendale, and pits and start on bowling green as well, but I think long term, we're going to like these investments a lot because they are achieving.
Much better than our 9% after tax target.
Okay. That's helpful and then in Brazil, you talked about and count mix from me elevated at 60% versus 50% and the first quarter can you just give us a sense of like what one point of sales mix can means in terms of the Brazilian demand.
And you talk about and TV mid to high teens growth and the region is that and ball specific comment or your general expectation and Brazilian demand.
Yes, good question.
I think it's where it's trending right now.
General demand and the market.
So I'll give you a little color and characterization of why this is happening obviously theres, a huge incumbent and Brazil that.
Has historically lean net a little bit more and to returnable glass and.
A series of competitors have come in and they've done really well with.
With <unk>.
Different offerings, principally and the beer space, all and cans and I think they have over the last three to five years, we've talked about and we've seen can penetration I think the and consumer is kind of liking that the grocery store and retail operators like that they don't want to carry these returnable glass bottles and so that influence.
And.
It has continued to grow and I think the large incumbent is shifting as well to offer what the and consumer wants.
And to characterize.
I think what we were talking about back in.
And <unk>.
Uh huh.
Earlier this summer when we were when we were talking about or in 2020, when we had our shareholder day Investor Day, we were characterize and growth and we were thinking incremental lifts probably from the low $50 to the mid <unk> in terms of the can penetration and.
So that delta versus.
A 60% to low 60, it could be $4 5 billion cans.
And the next three to five years.
And so we are that number that we quote that we quoted today and our prepared comments that was and the third quarter believe it was like and the high <unk> and so we're operating now and kind of what could be a more normalized run rate but.
And given Covid and everything that's going on and we'll have to see how that meters out over over the next.
Quarters and years, but.
We're still bullish on incremental advancement and even at 60% you referenced that versus North America work and penetration in the beer space is north of 70%.
I think theres, a real good opportunity to see that kind of get to 60 hover at 60, maybe even get to the upper end there but.
And then we will have to follow that quarter by quarter.
Yes.
Great. Thank you.
Our next question comes from the line of Arun Viswanathan with RBC capital markets. Please go ahead.
Alright, Thanks for taking my question congrats on the progress of 'twenty.
Just wanted to ask about Capex.
Capex and I guess, a long term growth.
So you've guided to.
Some increases here just given.
And the recent announcements.
Where do you see capex, maybe in 'twenty, three and 'twenty four do you expect that to come down to maybe one.
And one and what do you see as your long term maintenance Capex with all these new facilities.
Maintenance Capex, if you think about it per facility to think a couple of million two to 3 million Bucks per facility, probably a year is a good number on the beverage side.
And we will spend over 1 billion and a half this year.
We have a lot of opportunities and.
Really nice EBITDA generating returns.
I think we could be at an elevated level of 23 as well and then my Crystal ball is not that great, but I would see it starting to moderate some but I think we're going to be and OLED levels here for at least the next couple of years, yes, Here's the beauty about our business. We have we have many levers to pull and we can accelerate or even pull back depending on what happens and the market.
We've looked at this over the last 25 years within our business and and so what we see as an opportunity and as we went and as the Covid situation, we saw an opportunity to accelerate and Thats exactly what we did if we look out to 'twenty three 'twenty four 'twenty five and we see an opportunity to accelerate or decelerate that we've got plenty of levers to pull and so.
When you think about historically, our maintenance Capex had been in the range of $2 $75 million to $300 million, it's creeping up but it's not $500 million and so we have a lot of growth capital anticipate going forward, but we can always dial it back as the market dictates.
Good point and that what I would also add is that we spend probably $250 million more in 2020, then we.
Initially thought and.
And I look at that is really good because the faster we can get these assets up the faster we can make cans and settlement really nice margins.
Yes.
Okay. Thanks for that and then also just wanted to ask real quickly on.
Some of your.
Markets outside of the U S.
Any emerging trends that we've seen in the U S developed elsewhere.
South or is there anything else non U.
Category growth that Youre excited about.
No. That's a great question I do think that you will see it'll be interesting to see.
How selsor plays and Europe.
But there is clearly there is some underlying thinking that youre starting to see it show up and the U K, that's a heavy can market there.
Where it translates into other parts of that region and it will be interesting to see how and how that manifests and I think youll see it and in South America as well.
And then it's just to what degree is successful we will have to wait and see with the scanning data and in addition to the new new categories that Dan was just talking about let's not forget about sustainability.
<unk> penetration is Europe is probably the lowest of any region around the world certainly any major region around the world and.
I talked in my prepared remarks about lifecycle analyses and others and Youre going to see ball Corp, put and shoulder really into getting the word out not only to customers and the consumers, but also to Ngos and government officials because it indeed is the most sustainable package out there.
Thanks.
Our next question comes from the line of Mike <unk> with Barclays. Please go ahead.
Alright, Thanks, and good morning, guys. Good morning, good morning, Kurt.
First I wanted to follow up on one of the answers around import Kansas and North America. I guess first can you maybe just give us a sense of how many cans you ended up importing this year and second if I heard you right as you start to kind of over the next couple of years replace imported cans with domestically manufactured cans is it fair to say that.
That should give you some sort of margin uplift just from a mix benefit there.
Yes, I'll answer the second question first.
Our reference Scotts comment earlier, yes, it will.
And so a couple of things are happening I would say I can give you kind of fourth quarter, we were and the four to 500 million can range ball, specifically about what was imported.
And keep in mind, we're working with customers that we want to work with for decades here. So.
They're going to pay and absorb and that freight rate and things of that nature. We're working with our third party jv's et cetera. So we're trying to make this is as comfortable as possible for them to get those cans on the shelf and continue to build a momentum with the can so.
As Scott said as this capacity comes online over the next couple of years really we should see that kind of normalize and youll get back to typical fall through two weeks of volume growth on the on the leverage side.
Got it that's helpful. And then maybe if I could ask one on the Capex outlook from a different angle I think you mentioned this year Youre doing.
This year, you're doing a record $1 5 billion, which is call. It two five times the amount of Capex you spent in 2019 and you referenced thousands of new hires can you maybe just talk about your ability to logistically manage all of that you need to change any of your procedures or processes.
And improve the bandwidth of <unk>.
Managing all of these different processes and efficiently.
Yes, absolutely full stop and we've kind of we've been at this for two or three years I would say kind of when we we started to lean and when we really started to see those we've referenced it several times and new product introductions, and North America as kind of a defining kpis for us relative to the big the big CPG companies lean.
And a heavier into cans and the sustainability tailwind that we're seeing.
So I referenced and in my opening remarks, we've gone longer in terms of establishing a supply agreements to make sure that capacities there in the supply chain. We've also.
Looked at.
Some of the where we've stubbed, our toes candidly historically and new plant startups and a lot of that had to do with we didn't hire far enough advance we didn't train folks.
We didn't plan for elements of attrition. So we started hiring more engineers, we started hiring a lot more folks and talent acquisition and training.
Capabilities, we've made a lot of investments there.
So youre right. These are big investments big plants, and I think we've changed how we've operated or thought about operating and starting up facilities and.
Hopefully youll see that and the improved benefits on our startup curves and I think as it relates to the capital spending that much more than we used to spend.
And to Dan's point on adding engineers, we've beefed up our capabilities to be able to do this.
You have to think differently as a growth company than we were five six years ago. When we were growing and so we've been investing and that over the past couple of years.
Reap these benefits and so I think we're doing a much better dropped out and we were a year ago or two years ago and all of those.
Great. Thank you.
Our next question comes from the line of Phil Inc. With Jefferies. Please go ahead.
Hey, guys with the capacity you're going to bring on this year and North America and perhaps maybe you are building global inventories. He can do you feel good about meeting all demand this year and North America. Since last year, you can add to walk away from some business.
Great question I would say.
No.
The building inventory thats a bit of a dream scenario right now.
We're not anywhere near that and and we might not be for the next couple of years, we're going to be living hand to mouth, and we're heavily reliant on standing up capacity to meet our customer.
Requirements.
We will we will be servicing.
And the excess demand similar to kind of how we showed up and the fourth quarter will be where we can find cans anywhere in our network around the around the world. We will we will be shipping and to make sure that our customers can lean and other new product launches and other things that will help grow the can long term and again this is.
And my prepared remarks, I really leaned into this is not a quarter to quarter.
We're looking at this this is multi year significant growth and we want to make sure that.
We give our customers what they need when they need it right now to continue to lean into the can and continue to grow the can and Phil Thats. One of the reasons why we spent more and even 2020 than were anticipated and thats why the it's even that much more elevated in 2021, because as we sit here right now to Dan's point, we're scrambling to it to service our customers.
And we don't see that changing and that's why we're putting our foot to the to the.
And the pedal to make sure that we're not.
And we're not leaving.
Our customer short.
Got it.
Really exciting backdrop to be and you.
You gave some color on startup costs being about $50 million, where did kind of settle out in 2020, and and obviously, we're seeing a little more inflation across the board wanted to get some comfort and color on your ability kind of manage that and how you're set up from a past standpoint, I know 18, it was a little tougher, but and I think your contracts a little more favorable in terms of managing freight and south of that nature.
Can you kind of add.
Unpack that there's two components.
Startup was about half that in 2020, but then you have and increased labor base to remember our business is growing not just with the startups. What we're we're back filling a lot of jobs. So we're adding to the labor base a year over year and the fourth quarter that was up $13 $14 million.
And so we're getting.
Trying to keep up and being prepared for us to be able to handle all of this growth.
And I think relative to inflation and yes, I think we're in a much better space than we were.
Kind of at the Initializing the Rexam acquisition in terms of what we've been building in terms of our contract terms and conditions. So.
Yes, we're keenly aware of what's happening and the world relative to freight rates and I think we're pretty well protected kind of across the board.
Okay Super helpful and just one last quick one from me.
40 billion of growth that you are.
Kind of mentioned and through 2025, and you reiterated that today, how much of that secured contractually and then any color on the shape of the ramp and the next few years.
Yes.
I would say I have got.
Better line of sight into probably 2023, we've just finished our strategic planning process here and we.
We've taken it out.
And overwhelmingly we're contracted on that 25 billion through 2023.
So when that capacity comes online it will be backstopped by I can say, 80% to 85% is contracted.
And at the rate we're at right now from a demand standpoint, the other 50 and I might have might not have and inked.
But there is plenty of folks that are willing to take that capacity.
Okay really exciting thanks, a lot guys I appreciate the color.
Okay. Thank you.
Our next question comes from the line of Ghansham Panjabi with Baird. Please go ahead.
I wanted to go back to the to the Capex question from earlier at the Analyst Day, which was just four months ago.
Highlighted five plus billion of cumulative capex between 2020 and 2025.
And so I'm just curious is the uptick in 2021 at this point reflective of just timing relative to the five plus billion number or should we expect total capex through 'twenty five to be well above that.
And then related you also pointed towards $700 million of incremental EBIT through 2023 is that still the right number to look at or should we would it be higher given the acceleration in 2021 and capex.
On the Capex I think a lot of it is just to Dan's point, it's solidifying those contractual.
Relationships with our customers that solidified our belief that the volume is going to be there and so.
It's putting capacity and to meet those to meet those needs. So I wouldn't say dropped dramatically different other than things are pulling forward, probably from where we were before.
And finally $100 million of EBIT.
And that's still should be a good number because remember when you when you start up a plant youre not going to get you have a ramp up curve and so it's going to take some time for that ramp up curve to execute on and get to a kind of a full run rate and so when you put it put something in the ground today, especially with the new plant. If you are adding and the incremental lines you'd get there a lot.
<unk>, obviously like Fort worth and Roma, we added lines last year, you move up that that ramp up curve much quicker when you're doing something new where you got a new work force that Hasnt made cash before it's going to take a little bit more time to kind of get the real the top returns out of those.
Out of those investments so things that will start in 2021 get better 2022, and 'twenty three and so.
There's kind of a compounding effect as you move forward out beyond 'twenty two for all this capital Ghansham. This is John Let me, let me answer your question a different way and the.
The question is what has changed since the Investor day, nothing has changed other than we have greater conviction and what we talked about four months ago and so what youre seeing is an acceleration of capital and capital take advantage of that and <unk>.
And to Dan's point is I wish I could tell you a 2024 it looks like I can't it's too far out there, but these trends are the strongest I've seen and my 20 plus years at ball Corporation by far.
Thanks for clarifying that and then I just wanted to ask a different question.
I think we last year, we lost you there.
Operating metrics should go to the next question can you hear me now.
Yes.
Hello, Yes.
Yes, yes, we hear you.
Yeah.
Ghansham.
Was asking about.
Go ahead.
So I was asking about the chemical industry and capex being allocated towards chemical recycling and trying to replicate a circular economy dynamic similar to aluminum.
Also several bio resin alternatives being commercialized and many CPG customers are very public with their interest and recycled plastics.
Just kind of reconcile all of that how do you sort of think about those variables as it relates to the growth.
Yes, it's a great question, here's how I would reconcile it let's not forget that the aluminum container is the only container and and recycling stream that has economic value as we sit here today, you add on chemical recycling to plastic youre, just adding cost onto that.
And many of our customers we recognize that they are profit pools within the plastic industry and theyre candidly trying to protect that and I would to I don't I completely understand where they're coming from.
Brutal reality is and when.
When you think about the amount of actually even usable recycled material and plastic it's still and the single digits well chemical recycling change that yes, it could but non a wholesale basis because there is cost involved in doing that and Furthermore, it's not going to fundamentally change that we have a single.
Use plastic problem and the world full stop and.
And when you have recycling rates of beverage cans and above 70% and we have publically stated goals to try and get them as an industry above 90% that means you're not having any substantial.
Product of aluminum going into landfills and otherwise polluting the environment I think it's a tall part as we sit here right now to think about plastic and even get close to what we've already been achieving.
Got it thank you.
John.
Our next question comes from the line of Anthony Pettinari with Citi. Please go ahead.
Hi, good morning.
Good morning, John John You indicated I think Covid lockdowns haven't for the most part negatively impacted global growth I'm. Just wondering as you look at the last 12 months do you have any thought or concern that the very strong demand that you and your customers have seen has been boosted by at home consumption that might roll off.
Some extent hopefully as COVID-19 and becomes less of an issue or just any kind of thoughts you can give on that kind of at home versus on premise dynamic.
Last year, a great question and my comments will be more qualitative because I can't point to specific data but.
We've been spending much more time at home and I think the consumer writ large and we have done some research on that is much more aware of the waste that we're creating because we have to throw at it and our garbage cans every day, we're no longer as we sit here today is much of and on the go.
Society, then we worth and we didn't worry about that so that's one one data point that's important to point out. The other one is kind of the on premise off premise because the off premises has benefited at the expense of the on premise, but our conversations with the on premise suggest that when we go back.
The question is for example, and beer how much drag is going to be there. When you have glasses sitting there and people are going to have concerns about the the standardization thereof, and so what we've been hearing and is that a lot of the on premise is looking to go to much more single use.
Beverages, meaning cans and bottles and so I don't know Dan if you have anything else to add but those are two big data points. We've been focused on I think one one thing and I think John touched on this work.
I don't know what the size of the <unk>.
Flex work.
Work life balance has shifted in terms of a permanent shift, but thats, a very rural Sam and we're dealing with it here I mean, we're a company that <unk>.
80%, 90% of our folks come to work historically before before this happened and we're very much.
Going to be.
And we've all realized that we can do our jobs from anywhere with the technology and if youre doing those from home or you're doing those from your apartment or your studio.
Youre going to be drink and packaged goods. So the can will benefit and that will be here for quite some time.
Thank you.
The other.
Thing that we're paying close attention to and it probably goes without saying, but I'll restate it here.
The market is incredibly tight.
As a result of that we know a number of our customers are limiting their innovation releases and cans. So yes, there's been a lot of new products that have come onto the market.
Overwhelmingly been and cans, but there have been an awful lot of other products because they can't find cans that havent been released and so even if theres going to be a shift in terms of consumption patterns and volume and and folks do go back to bars, we understand that that's going to happen.
There's still an awful lot of pent up demand and innovation that is going to hopefully offset that.
And in aggregate when we look at that and again. This is why we think what we said at our Investor day.
We're there or thereabouts or potentially even better depending on what happens with these and consumer behavior patterns coming out of Covid.
Okay. That's very helpful. And then maybe just following up on that comment on innovation. There were a few trials of Stillwater and cans slated for last year, they've got a lot of attention before COVID-19 kind of disrupted everything is it possible to talk about how the can is doing with Stillwater is that something thats been may be pushed back or maybe capacity.
Constrained with fewer Kansas available and just any kind of broad comments on that opportunity.
Sure.
The products that were in existence are doing well I mean double digit growth coming off of a low base. The issue as you said has a lot more to do.
The retailers.
And that.
They've consistently quarter over quarter pushed off.
Adopting new products.
To manage.
The accelerated velocity and and all the other products that are on their shelves and making sure those supply chains and robust. So we're still having very positive conversations and we look forward to when we get out of this COVID-19 environment that youll see a lot of those.
Innovations coming online and some fairly significant.
Well recognizable brands and.
To Dan's point, we are capacity constrained right now so if euro Stillwater company thinking about going and the can it's very tight that's one of the reasons why we've been accelerating our investing.
Our investments to kind of free up some capacity to really kind of push those things because right now. The reality is we don't have the cans to supply those people that are looking to go into it.
Okay. That's very helpful I'll turn it over.
Our next question comes from the line of George Staphos with Bank of America. Please go ahead.
Hi, everyone. Good morning.
Thanks for all the detail good morning, I wanted to.
Go back through the question on startup costs.
And we will occur and different.
Angle I know.
We're looking forward to the question, but and really projected out and to cash flow for next year to the extent that we can comment for 'twenty two so.
Over the last few quarters, we've talked about startup costs, and you've talked about being able to.
Less and their effect as you have this high class problem.
Try and build and capacity what do you do from here.
So less and the effects were really baked in $50 million ongoing startup cost every year.
And then the degree to which capacity is growing and given the capex ramp this year.
Should we not expect and accelerated pickup and operating cash flow because you start to get the return on that and 2022, how would you comment to those point guys.
No I think Youre exactly right, George we'll see the acceleration and operating cash flow.
We'll have significant startup and 'twenty, one because we're starting with.
Two two and a happy with bowling Green.
Large facilities. So the startup costs will be elevated when we're doing greenfield facilities really and North America the costs become less the Czech Republic, which will be lost because of the labor is a heck of a lot less so you could breakeven and South America is a lot less with through time that will be lost because the labor base just isn't as expensive to enter that.
And we filed through previous startups, bringing these people and earlier getting them trained having redundancy is really important to make sure that venue and kind of hit your startup curve. So I would say it will track with Greenfield facilities will be elevated with greenfield facilities in North America, but you are still going to get.
More than that benefit through the growth and.
And operating cash flow and earnings as these things ramp up per.
And <unk> strategically another way to think about a day AD referenced it earlier and our business writ large what we've talked and I'm talking more about the beverage can side of the business, but for every one percentage point increase and volume over time strategic and we ought to get a two X.
Flow through on the margin side of that so Dan said, we're going to be low double digits. So call. It just for discussion privileged just call. It 10% that ought to say we are in a perfect world. We ought to have a 20% earnings growth and net operating earnings growth, but but that's in a perfect world and we had the startup costs and reduce the startup costs from that I think that.
A good basis by which the strategically think about this.
Thanks, guys.
Next question I had.
A couple of questions on innovation.
One are you seeing any signs of exhaustion and I guess and the answer now.
But from your consumer studies any exhaustion on the whole spiked seltzer category and as you bring on these this next wave of Cannes, How are we going to see more new flavored spiked seltzer is or are there other categories to the extent that you can comment.
And that will perpetuate innovation and angle how would you think about that how would you have us think about that.
Yes, it's a great question.
And we touched on this and a little detail at the Investor day. So if I go back to how I was characterizing how we were thinking about.
It's really we look at alcohol innovation.
So spike sales there is a part of that and we know there's all sorts of innovation that's happening in that space. So.
Do we think spec sales is going to continue to grow at 200% note.
<unk>.
There is a there is a spot where we think it gets to and many people have referenced kind of light beer market share kind of in that range. Okay.
Maybe but were George we've talked about this a number of times, we're still incredibly bullish on the alcohol space on the fact that.
Spirits are shifting into cans, which was unheard of for a decade, plus and so the more innovation, that's showing up and.
And to cans and the alcohol space I think youre going to start to see.
Well I don't know what were going to call it spiked seltzer or something else, but I think youll continue to see.
New innovation coming out and cans and that should benefit us.
And just think about the Ts. Despite ts that are I think youre going to see a big.
<unk> of those in 2021 is that a spiked seltzer and not I think that stands point it doesn't matter, it's and the alcohol space and its innovation and the Kansas.
Understood My last one and I'll turn it over.
We haven't seen that many capacity announcements for south East Asia, even though given our work that market also looks to be pretty tight.
What do you what would you have us take away on ball view and.
Of that region and its attractiveness and if you keep running to South America at 10% to 15% capacity given our work you're going to need and other can plant there pretty soon and I know thats been a narrative. This whole call you were out of capacity, but how would you have us think about the prospects for our next plant in South America. Thanks, guys. Good luck in the quarter.
Yes, George you just said South America, I think you'd be in southeast Asia.
Yes.
Put them together to for one there John.
And.
Well to be honest, it's a bit of and Apple and a pair for ball Corporation. As you know were very big and in South America, we're not all that big and Southeast Asia, We are.
I think our ability to grow in some way is limited by by our resources and it's not just the capital the people all the things that Dan has done a great job and really redefining our processes and reimagining to the onboarding of people to the capital equipment and and everything in between I think so it gets down to a prioritized.
<unk> issue and we see the returns and the places where we have the greatest leverage which is north and Central America, EMEA and South America to be greater than South East Asia does that mean, we're not looking at South East Asia of course, not but we have partners and southeast Asia and we just think the greatest Bang for the Buck for US as shareholders are doing what we're <unk>.
Currently doing right now.
Alright, I'll turn it over thank you guys.
Thanks George.
Our next question comes from the line of Mark Wilde with Bank of Montreal. Please proceed.
Good morning, guys.
Good morning, good morning.
First the hand, if we could just talk about what growth at 20%.
Volume growth and northern Europe and.
Fourth quarter, and we're seeing an acceleration and growth in Europe, whether there is an opportunity to start to improve some of the European contracts and the way that you've done and North America over the last few years.
Yes. Thanks for that question, let me, let me characterize the fourth quarter.
And these these arent misprints.
Referenced a couple times I think.
And the U K, we saw growth for the can of 17% and the fourth quarter and Germany, We saw 17%, Spain 15.
Italy, 13, we even saw a 10% growth in France.
And Russia continues to be kind of north of 15%. So it's really everywhere I think you asked about northern Europe, but its everywhere in Europe.
The million dollar question and $1 million EBITDA question that you asked is.
And what's happening in Europe, which is different and North America, and South America, North America, and South America got tight.
A lot tighter a lot faster over the last 18 months and we're starting to see that in Europe, right now and Thats sort of what you need in order to.
Reevaluate the landscape if you are your contracts.
I will tell you that the gross profit and we do really well and <unk>.
Europe so.
I think it may be as much to do with tightening the terms and conditions like we have had the opportunity to do with and other parts of the world.
But it's certainly something we're focused on and engage with our team there.
And we're kind of at the precipice of having a market that looks similar to the other regions in terms of how tight it is to potentially be able to influence.
So I don't know if that helps.
And that actually that helps a lot Dan I wondered just toggling back and Brazil for just a second.
From.
From my trips and it seemed like most of the can market in Brazil beer, we look here in North America about 60% of the cash.
And market is non alcohol and what's the opportunity in Brazil, and Latin America more broadly to move the non alcoholic beverage market more toward cans.
Yes, it's a great question, I think and Brazil, particularly there is.
Youre dealing with tax structures from the well.
Longevity of.
The folks that you would expect to see significant shifts or a more normalized.
Package mix a lot of it just has to deal with where they make their money.
And the profit pools associated with that having said that.
Sustainability is becoming more and more.
Something that.
All of the countries in South America are concerned about and.
And that will continue.
To build and put pressure on helping to make that shift I think we need a combination of a more neutral tax structure on the different disparate profit pools Cup.
Coupled with sustainability trends to continue to improve.
The one thing that's incredibly bullish though is as you said the overwhelming our beverage market for Kansas and beer and.
And that pack mix continues to shift.
Two cans and a lot of new innovation is coming out and the alcohol market and cans as well so not too dissimilar to what you've seen and the last decade, and North America and more recent from an innovation standpoint, so even if CSD for instance doesn't shift we're in a really good growth.
For the next five five years plus.
Okay and last one from me is just briefly can sheet I wondered if you can talk about what youre doing with suppliers.
Ensure a supply of can sheet and whether youre doing this more on.
And our regional basis that might be a little more amendable to kind of.
Developing circular.
Recycling structures.
Yes, that's a great question I mean.
Again, similar to a number of.
Data points.
We saw this.
And a tailwind and growth trajectory several years ago and.
Learn through difficult times with the previous administration and tariffs that we needed a more robust and a more global surety of supply.
Supply chain as it relates to rolling Mills, we have north of 20 different contracts around the world with mills and so we're in a good spot it may not be localized exactly where we want it depending on per.
Performance of all the mills, but we have access to metal, which is the most important thing right now and all the conversations we're having with the supply base to your point, it's get it where we're making mccann's get it close to the facilities get it close to where the recycling and scrap stream is because.
All of that is going to enable us to step into all of these tremendous attributes of the can we needed local where we want it to be circular and.
And I think.
We will start to see.
Some some some more investment and North America and in particular as it relates to the.
To make sure if it will take one more question Oh I'm sorry.
Yes.
Certainly our last question comes from the line of Kyle White with Deutsche Bank. Please go ahead.
And thanks for taking the question I just wanted to follow up quickly on marks the reasonable growth in EMEA and tremendous but can you dig a bit more into what beverage categories drove this and why did we all have a tendency that level of growth and <unk> and not necessarily <unk> or even <unk>.
Well <unk> and even parts of <unk> don't underestimate there is still a bunch of countries over there, it's not Europe and Covid certainly had had impacts on the freight side and.
What channels were open et cetera. So.
I think <unk> was a more normalized consumption behavior pattern.
Number one and I would say.
The UK was.
CSD and beer grew.
But when you talk about.
Italy, Spain.
Russia, that's heavy beer heavy and heavy beer growth.
And then the rest of the market as it is overwhelming beer, but in some spots like the U K you saw nice growth and other other categories.
Got it and then just one question and last question here I wanted to shift gears your favorite question on aerospace.
Sales of our approach and 2 billion here now backlogs are strong so.
And so just kind of wondering how you view that business in terms of fit within the ball portfolio and whether you think it has a large enough base to be a standalone business.
It's growing very strongly and it's a great business and we always look at those types of things and.
Do we.
And the current environment.
What we're trying to do is we will always let me answer it differently. We will always be looking at is to maximize the value to ball Corporation shareholders, and let's not forget that the management and the board of our company owned.
One well over 1 billion and ball Corp stock actually a couple of billion dollars. So as a result, we're focused on how to maximize the long term value of our company and if that means keeping it together great. If that means there is a better way to play a great but as we see right now we've got three different businesses, the beverage can business aluminum aerosol business and <unk>.
Aerospace business and soon to be a cup business that we all think are great. They are growing and we have more opportunities right now than I've ever seen in my life at ball.
Alright. Thank you good luck and the year.
Alright, thank you.
Dmitry I think I think we're all finished so I want to thank everyone for your participation stay stay safe stay safe excuse me B, well and we look forward to talking to you a few months take care.
Thank you that does conclude the conference call for today, we thank you all for your participation and ask that you. Please disconnect your lines.
Okay.
Okay.
Growth.
Yes.
And.
And.
[music].
And so.
And so.
Sure.
Okay.
[music].
And then.
Sure.
Okay.
[music].
And then.
Moving.
John.
John.
Okay.
And.
Sure.
[music] growth.
Yes.
Okay.
Sure.
Okay.
John.
Okay.
Okay.
John.
Uh huh.
[music] book.